AMERICAN TRUCKING ASSOCIATIONS v. CITY OF LOS ANGELES No. 10-56465.
AMERICAN TRUCKING ASSOCIATIONS, INC., Plaintiff-Appellant, v. THE CITY OF LOS ANGELES; THE HARBOR DEPARTMENT OF THE CITY OF LOS ANGELES; THE BOARD OF HARBOR COMMISSIONERS OF THE CITY OF ANGELES, Defendants-Appellees, NATURAL RESOURCES DEFENSE COUNCIL; SIERRA CLUB; COALITION FOR CLEAN AIR, INC., Defendants-intervenors-Appellees.
United States Court of Appeals, Ninth Circuit.
Filed September 26, 2011.
Robert Digges, Jr. (argued), Chief Counsel, American Trucking Associations, Inc. Arlington, Virginia; Stephen S. Anderson, Jr. , William Stephen Cannon , Seth David Greenstein , Richard Levine , and Evan P. Schultz , Constantine, Cannon LLP, Washington, D.C.; Christopher Chad McNatt, Jr. , Scopelitis, Garvin, Light, Hanson & Feary, LLP, Pasadena, California, for the petitioner-appellant.
Steven S. Rosenthal (argued), Susanna Chu , David Cousineau , and Alan Palmer , Kaye Scholer LLP, Washington, D.C.; Joy Murakami Crose and Simon Michael Kann , LA City Attorney's Office, San Pedro, California; Thomas A. Russell and Carmen A. Trutanich , City of Los Angeles, San Pedro, California, for defendants-appellants the City of Los Angeles and the Board of Harbor Commissioners.
Melissa Lin Perrella (argued) and David Richard Pettit , Natural Resources Defense Council, Inc., Santa Monica, California, for defendants-intervenors-appellees The National Resources Defense Council, Sierra Club, and Coalition for Clean Air, Inc.
Anthony T. Caso , Law Office of Anthony T. Caso, Orange, California; John C. Eastman , The Claremont Institute Center for Constitutional Jurisprudence, Orange, California, for amicus-curiae The Center for Constitutional Jurisprudence and Harbor Trucking Association.
Kamala Harris and Susan Lea Durbin , Office of the California Attorney General, Sacramento, California, for amicus curiae the State of California.
John R. Bagileo , Law Office of John R. Bagileo, Glenwood, Maryland; Mark Irving Labaton , Motley Rice LLP, Los Angeles, California, for amicus curiae the Intermodal Association of North America, Inc.
William L. Messenger , National Right to Work Legal Defense Foundation, Springfield, Virginia, for amicus curiae Raymond Porras, Pilar Orellana, and the National Right to Work Legal Defense Foundation.
Paul D. Cullen, Jr. , The Cullen Law Firm, PLLC, Washington, D.C., for amicus curiae The Owner-Operator Independent Drivers Association, Inc.
Before: Betty B. Fletcher and N. Randy Smith, Circuit Judges, and Rudi M. Brewster, District Court Judge. Opinion by Judge B. Fletcher; Dissent by Judge N. R. Smith
B. FLETCHER, Circuit Judge.
Beginning in 2008, the Port of Los Angeles (POLA, or the Port) prohibited motor carriers from operating drayage trucks
American Trucking Associations, Inc. (ATA, a national association of motor carriers),
ATA appeals. We have jurisdiction under 28 U.S.C. § 1291. We affirm the district court in large part, but reverse its decision that the employee-driver provision of the concession agreement falls within the market participant doctrine and is not preempted.
The Port of Los Angeles is an independent division of the City of Los Angeles, managed by the Board of Harbor Commissioners (BHC or the Board). It "occup[ies] land that was granted by the State of California . . . via the California Tidelands Act, and the Port[ ] hold[s] the land in trust for the benefit of the people of California." Am. Trucking Ass'ns, Inc. v. City of L.A., 559 F.3d 1046, 1048-49 (9th Cir. 2009) (ATA-II). The Port is not, however, taxpayer-supported; it depends entirely on property leases and fees for its revenue, and manages its funds independent of the City. The Port develops terminal facilities and then leases those facilities to shipping lines and stevedoring companies.
Terminal operators unload cargo from ships docked at the Port into marine terminals. From the marine terminals, drayage trucks transport cargo to customers (or to off-Port long-distance trucks or railroads for further transport). "A supply of drayage trucks and drivers is integral to cargo movement at the Port." Cargo owners, ocean carriers, railroads, and other transportation providers arrange for drayage services through Licensed Motor Carriers (LMCs or motor carriers). Prior to 2008, most LMCs serving the Port did not own or operate drayage trucks; rather LMCs contracted with independent owners and operators of trucks to actually provide the drayage services. The Port does not directly contract for any drayage services.
Around 1997, the Port developed plans to expand its cargo terminal facilities in order to accommodate more (and larger) ships. See Natural Res. Def. Council, Inc. v. City of L.A., 126 Cal. Rptr. 2d. 615, 618 (Cal. Ct. App. 2002). Those plans have been stymied by legal opposition from community and environmental groups, which claimed that the Port's expansion would increase air pollution, that such pollution would adversely effect the health of people in the surrounding communities,
In response to the opposition to Port expansion, the Boards of Harbor Commissioners for Los Angeles and Long Beach adopted a Clear Air Action Plan (CAAP) in November 2006.
Recognizing that trucks are a major source of air pollution at the Port, the CAAP introduced the Clean Truck Program, which was "designed to reduce emissions from the heavy duty trucks involved in port drayage to improve the health of people living in the communities surrounding the [Port]." The CAAP directed Port staff to "undertake a 5-year, focused effort to replace or retrofit the entire fleet of over 16,000 trucks that regularly serve our Port . . . ." From November 2006 through February 2008, the Ports worked to develop the Clean Truck program. The Ports held a number of public meetings, consulted with stakeholders, and hired consultants to evaluate ideas for implementation.
In October 2007, the Port adopted the first part of its Clean Truck Program: a progressive ban on older, higher-polluting trucks, with the goal that by 2012 all trucks visiting the Port frequently or semi-frequently will meet the United States Environmental Protection Agency's 2007 emissions standards. The ban forbids terminal operators to allow non-compliant trucks to enter Port property. In December 2007, the Port also implemented a Clean Truck Fee, which functions as a penalty to incentivize rapid replacement of older trucks. The fee is charged to terminal operators, not to motor carriers, and applies to every container transported during the transition period by a drayage truck not in compliance with 2012 emissions goals. Neither the progressive ban nor the Clean Truck Fee are directly at issue in this appeal.
During its design of the Clean Truck Program, the Port identified several dilemmas it believed it needed to address. The Port believed that it would be very difficult for drayage service providers to comply with the progressive ban, particularly in light of research showing that drayage service providers had low capital and limited opportunities to obtain credit to invest in the acquisition of new trucks. Accordingly, the Port recognized that it would need to provide substantial financial grants to support the Clean Truck Program. The Port also wanted to "ensure that the Clean Trucks Program funding system yields more than temporary benefits." The Port was especially concerned with ensuring that trucks purchased or retrofitted using State funding were maintained to ensure environmental compliance and safety. This concern stemmed from the Port's belief that independent owner-operators had little capital to invest in maintaining cleaner trucks and that current mechanisms were inadequate to ensure maintenance on each individual truck.
The Port was also concerned that the Clean Truck Program, in combination with the Transportation Worker Identification Credential (TWIC) program,
To address its concerns, the Port decided to implement concession agreements as part of the Clean Truck Program. It hired consultants to examine whether proposed concession agreements would further the Port's economic, operational, and safety goals. Some of the major issues the consultants considered were: (1) whether to provide incentives only to licensed motor carriers, or to all independent owner operators; (2) whether to require operational criteria to provide oversight of drayage truck operations; (3) and whether to require licensed motor carriers to convert to an "employee-only" model as opposed to using independent owner-operators.
Ultimately, the consultants reached similar conclusions. Each report recognized that stringent operational criteria and the adoption of an employee-only model for motor carriers would result in significant economic hardship for drayage truck providers, likely putting many of the more economically-marginalized companies out of business. Yet, each recommended that converting to such a model would have greater long-term benefits and provide the Port with the "best guarantee" of long-term sustainability in port drayage.
In March 2008, the Port approved a multi-faceted incentive program and a concession agreement system. The incentive program was designed to "encourage Licensed Motor Carriers to cooperate" with the progressive ban. These programs included the Truck Funding Program, which offers grants covering 80% of the cost of obtaining a new, compliant truck or 100% of the costs of retrofitting older trucks, and a lease-to-own program with financial institutions selected by the Port and financial assistance towards the purchase of trucks at the end of the lease term; a Scrap Truck Buyback program, which provides a $5,000 bonus incentive for scrapping pre-1989 drayage trucks; a Procurement Assistance Program to help smaller motor carriers obtain better terms on new truck purchases; and a Concession Business Outreach Program. Though other incentives are available to any owner of qualifying trucks, the Truck Funding Program is available only to licensed motor carriers who are "concessionaires" in good standing with the Port, and funding priority is given to "concessionaires with a history of port drayage and financing." The funding is not available to independent owner-operators. In addition, concessionaires receiving funding must "commit to a minimum Port drayage frequency for each new truck of a minimum average of six trips per week for five years." The incentive programs are not directly at issue in this appeal.
Finally, the Board issued an order approving concession agreements and providing that, effective October 1, 2008, "no Terminal Operator shall permit access into any Terminal in the Port of Los Angeles to any Drayage Truck unless such Drayage Truck is registered under a Concession or a Day Pass from the Port of Los Angeles." The concession plans created a direct contractual agreement between the Port and motor carriers providing drayage services.
Five provisions of the concession agreements are at issue in this appeal:
Each concessionaire also agreed to pay a one-time concession fee of $2,500, and an annual fee of $100 for each permitted truck. As of April 2010, approximately 600 motor carriers had signed concession agreements with the Port.
The procedural history of this case is extensive; we commend the reader to the orders and opinions discussing ATA's quest for a preliminary injunction.
We review a district court's decision regarding federal preemption de novo. Tocher v. City of Santa Ana, 219 F.3d 1040, 1045 (9th Cir. 2000), abrograted on other grounds by City of Columbus v. Ours Garage & Wrecker Serv., Inc., 536 U.S. 424, 428 (2002), and Tillison v. City of San Diego, 406 F.3d 1126 (9th Cir. 2005); see also United States v. Hinkson, 585 F.3d 1247, 1259 (9th Cir. 2009) (en banc) (If a "`question requires us to consider legal concepts in the mix of fact and law and to exercise judgment about the values that animate legal principles, . . . the question should be classified as one of law and reviewed de novo.'") (quoting United States v. McConney, 728 F.2d 1195, 1202 (9th Cir. 1987)).
The district court's factual determinations are reviewed for clear error, and may be reversed only if they are "illogical, implausible, or without support in inferences that may be drawn from the facts in the record," leaving the court of appeals with a "definite and firm conviction" that a mistake has been committed. Hinkson, 585 F.3d at 1251, 1263.
We first discuss the law relevant to this appeal, and address ATA's contentions that the district court misinterpreted the applicable law. We do not, in this section, address ATA's contentions that the district court misapplied the law to the facts. We will apply the law to the facts in section V of this opinion.
In determining whether § 14501(c)(1) of the FAAA Act preempts State action, we ask three questions. First, we must consider whether the provision "relate[s] to a price, route, or service of a motor carrier." Id.; see also Rowe, 552 U.S. at 368. If the answer is no, the provision does not fall within the preemptive scope of § 14501(c)(1). If the answer is yes, we must consider whether the provision "has the force and effect of law"— that is, whether the provision was enacted pursuant to the State's regulation of the market, rather than the State's participation in the market in a proprietary capacity. 49 U.S.C. § 14501(c)(1); see also Tocher, 219 F.3d at 1049-50. If the provision does not fall within the market participant doctrine and relates to rates, routes, or services, we turn to the third inquiry and consider whether any of the FAAA Act's express exemptions save the regulation from preemption. As relevant here, the FAAA Act does not "restrict the safety regulatory authority of a State with respect to motor vehicles." 49 U.S.C. § 14501(c)(2)(A); see also City of Columbus, 536 U.S. at 428.
ATA argues that the district court misidentified and misapplied the law at every step. We first consider each of ATA's general challenges to the district court's analysis. We reject ATA's arguments that (1) the concession agreements per se affect rates, routes, and services; (2) the market participant doctrine does not apply because the Port does not "procure" drayage services; and (3) that the Supreme Court's decision in Castle v. Hayes Freight Lines, Inc., 348 U.S. 61 (1954) precludes the application of the safety exception to this case.
A. Related to Rates, Routes, or Services
"[S]tate enforcement actions having a connection with, or reference to [motor] carrier rates, routes, and services are preempted." Rowe, 552 U.S. at 370-371 (internal quotation marks and emphasis omitted) (quoting Morales v. Trans World Airlines, Inc., 504 U.S. 374, 384, 386-84, 390 (1992) (interpreting the nearly identical preemption provision of the Airline Deregulation Act of 1978, 49 U.S.C. app. § 1305(a)(1)). The terms "rates, routes, and services" were "used by Congress in the public utility sense; that is, service refers to such things as the frequency and scheduling of transportation, and to the selection of markets to or from which transportation is provided. . . . . Rates indicates price; routes refers to courses of travel."
In determining whether a provision has a connection to rates, routes, or services, we must examine the actual or likely effect of a State's action. Cf. Cal. Div. of Labor Standards Enforcement v. Dillingham Constr. NA, Inc., 519 U.S. 316, 325 (1997); Californians for Safe & Competitive Dump Truck Transp. v. Mendonca, 152 F.3d 1184, 1189 (9th Cir. 1998). If the State, for example, mandates that motor carriers provide a particular service to customers, or forbids them to serve certain potential customers, the effect is clear, and the provision is preempted if it has the force and effect of law. See Rowe, 552 U.S. at 372-73; Morales, 504 U.S. at 388-89 (noting that advertising guidelines expressly referenced rates and had a forbidden significant effect on the fares charged). The waters are murkier, though, when a State does not directly regulate (or even specifically reference) rates, routes, or services. We recognize that FAAA Act "pre-emption may occur even if a [S]tate law's effect on rates, routes, and services `is only indirect.'" Rowe, 552 U.S. at 370 (quoting Morales, 504 U.S. at 386). At the same time, we require that the effect on rates, routes or services be more than "tenuous" or "remote." Id. at 371 (quoting Morales, 504 U.S. at 390).
In such a "borderline" case, the proper inquiry is whether the provision, directly or indirectly, "binds the . . . carrier to a particular price, route or service and thereby interferes with competitive market forces within the . . . industry." Air Transport, 266 F.3d at 1072; cf. Am. Airlines, Inc. v. Wolens, 513 U.S. 219, 232-33 (1995) (holding that the Airline Deregulation Act's preemption clause "stops States from imposing their own substantive standards with respect to rates, routes, or services" but does not prevent States from enforcing dispute resolution provisions in contracts signed by airlines); Mendonca, 152 F.3d at 1189 (holding that a State minimum wage statute did not affect rates, routes or services). ATA argues that the district court erred in examining the effect of each individual provision of the concession agreements, contending that "the requirement of a concession agreement per se affects routes and services" because it provides "POLA [the] ability to prohibit non-concessionaire LMCs from entering its property."
Our decision in Air Transport forecloses ATA's argument. 266 F.3d at 1071-72. Air Transport considered whether a city ordinance requiring that registered domestic partners be afforded treatment equal to spouses had an effect on the routes of airlines.
B. The Market Participant Doctrine
ATA contends that the Port does not participate in the market because the concession agreements do not fall neatly within the two-prong test adopted by our circuit as a guide for determining whether the market participant doctrine applies. Johnson, 623 F.3d at 1023-24. The test was first developed in Cardinal Towing & Auto Repair, Inc. v. City of Bedford, 180 F.3d 686, 693 (5th Cir. 1999), and asks:
Id.; see also Chamber of Commerce v. Lockyer, 463 F.3d 1076, 1084 (9th Cir. 2006) (en banc), rev'd on other grounds sub nom. Chamber of Commerce v. Brown, 554 U.S. 60 (9th Cir. 2008)(en banc) and vacated by 543 F.3d 1117 (2008). The first question "looks to the nature of the expenditure and protects comprehensive [S]tate policies with wide application from preemption, so long as the type of [S]tate action is essentially proprietary." Johnson, 623 F.3d at 1024 (internal quotation marks omitted) (quoting Lockyer, 463 F.3d at 1084). "The second question looks to the scope of the expenditure and protects narrow spending decisions that do not necessarily reflect a [S]tate's interest in the efficient procurement of goods or services, but that also lack the effect of broader social regulation." Id. (internal quotation marks omitted) (quoting Lockyer, 463 F.3d at 1084). If the answer to either question is yes, the market participant exception applies. Id.
The second prong of the Cardinal Towing test is not at issue here. The concession agreements are not "narrow spending decisions" that "lack the effect of broader social regulation." Johnson, 623 F.3d at 1024 (quoting Lockyer, 463 F.3d at 1084)(internal quotation marks omitted). "Narrow spending decisions" tend to be expressly limited in time and scope—for example, they apply to one city contract or to a number of contracts of a particular size and funded by a particular finite source. See Id. at 1028-29 (agreement limited to construction projects costing over $200,000, in a three-year period, and funded by specific initiative); Sprint Spectrum LP v. Mills, 283 F.3d 404, 421-21 (2d Cir. 2002) (contract applied only to one cellular phone tower located on particular property); Cardinal Towing, 180 F.3d at 694 (restrictions applied to single contract for police tows). Here, the concession agreements are not limited to contracts of a particular size or subsidized by State funds, and are not limited to drayage operations for a particular time. These factors indicate that the concession agreements do not fall within the narrow scope prong.
The Supreme Court has applied the market participant doctrine to a case not involving "procurement" of goods. In Hughes v. Alexandria Scrap Corp., 426 U.S. 794, 796-97 (1976), the Supreme Court upheld a Maryland policy penalizing in-state wreckers who kept abandoned vehicles on their property, and offering bounties to processors who scrapped vehicles formerly titled in Maryland. The Court held that Maryland's "payment of [S]tate funds—in the form of bounties—to encourage the removal of automobile hulks" was proprietary and did not violate the dormant commerce clause. Id. at 809. It stated that vehicles "remain within Maryland in response to market forces, including that exerted by money from the State." Id. at 810. Under Alexandria Scrap, procurement for governmental use is not the only way a State can participate in the market.
The first prong of Cardinal Towing is useful in cases where the government is buying goods or seeking services,
We stop short, though, of holding that every provision of the concession agreements is saved from preemption. The Supreme Court has placed limitations on what a State, acting as a market participant, may do. "[W]here the [S]tate seeks to affect private parties' conduct unrelated to the performance of contractual obligations to the [S]tate," the State's actions are "tantamount to regulation." Johnson, 623 F.3d at 1025-26 (quoting Wis. Dep't of Indus., Labor & Human Relations v. Gould Inc., 475 U.S. 282, 289 (1986); see also Chamber of Commerce v. Brown, 554 U.S. 60, 70 (2008). Accordingly, we must examine whether the provisions at issue further the State's interests as a facilities manager, or whether the provisions seek to affect conduct unrelated to those interests. The State's avowed purposes may be relevant, but we need not inquire into the State's undisclosed intentions. See Gould, 475 U.S. at 288 (examining the State's admitted motives); Johnson, 623 F.3d at 1026 (refusing to examine the State's "ulterior motives"). We do not examine each individual provision of the concession agreements at this point, saving that discussion for part V of this opinion.
C. Safety Exception
Finally, we consider whether the district court identified the correct legal principles in applying the safety exception to FAAA Act preemption. ATA argues that, notwithstanding the express safety exception of 49 U.S.C. § 14501(c)(2)(A), the Port has no authority to "revoke a motor carriers' ability to engage in interstate commerce." It argues that in Castle, 348 U.S. 61, the Supreme Court held that if interstate motor carriers violate the safety laws of the State, it is up to the federal government to "protect the State's interest" through federal enforcement proceedings. Thus, according to ATA, at the time the FAAA Act was passed, the State's regulatory authority did not permit it to revoke the ability of motor carriers to engage in interstate commerce. ATA argues that the safety provision incorporates the then-existing regulatory authority of a State, and simply does not grant the States "independent power to make safety-related revocations."
Castle does not, however, stand for the proposition that the States have no power to limit motor carrier access to particular land in order to further safety. In Castle, Illinois punished freight carriers that repeatedly violated State limits on the weight of commercial trucks by totally suspending the carriers' right to use Illinois state highways for up to one year. 348 U.S. at 63. At the time, the Interstate Commerce Commission had the exclusive right to issue and revoke certificates permitting motor carriers to operate interstate. Id. at 63-64. The Court held that Illinois's action was "the equivalent of a partial suspension of [a motor carrier's] federally granted certificate," because Illinois highways were used "to transport interstate goods to and from [Illinois and] are also used as connecting links to points in other states." Id. at 64. Accordingly, Illinois's action was prohibited. Id. at 65. The Court stated, though, that Illinois remained free to impose "conventional forms of punishment" on over-weighted or improperly loaded motor trucks. Id. at 64. The Court also made clear that it "know[s] of no reason why the Commission may not protect the [S]tate's interest, either on the Commission's own initiative or on complaint of the [S]tate." Id. at 65. It did not, as ATA asserts, hold that only the federal government may impose punishment for a motor carrier's violation of State safety regulations.
With these principles in mind, we analyze whether, and on what grounds, each challenged provision is subject to preemption by the FAAA Act. We agree with the district court that the financial capability provision has only a tenuous and remote connection to rates, routes, or services, so is not preempted by § 14501(c) of the FAAA Act. We also agree with the district court that the maintenance provision is intended to be and is genuinely responsive to safety, so is not preempted. We conclude that the off-street parking and placard provisions were adopted to address specific proprietary concerns faced by the Port as a facilities manager and do not seek to affect unrelated conduct by third parties, so fall under the market participant doctrine. We hold, however, that the employee-driver provision is pre-empted because it is tantamount to regulation.
A. Financial Capability Provision
The financial capability provision requires a concessionaire to "demonstrate[ ] to the satisfaction of the Executive Director that it possesses the financial capability to perform its obligations under th[e] Concession." As with the maintenance provision, the district court held that the provision did not relate to rates, routes, and services in more than a tenuous way. It concluded, however, that the provision was not genuinely responsive to safety. We agree with the district court that the financial capability provision does not relate to rates, routes, and services in a more than tenuous fashion, and is not preempted; we therefore do not apply the market participant doctrine or safety exception.
B. The Maintenance Provision
We conclude that the maintenance provision was intended to respond to safety concerns. The Port cited concerns about vehicle safety (including vehicle maintenance, repair and replacement, and driver safety) as motivations for adopting the concession agreements. The Port also "found that serious safety and security problems existed in connection with drayage trucks at the Port" and cited statistics indicating that heavy duty vehicles accounted for a disproportionate share of traffic violations, accidents, and citations for improper maintenance.
We also agree with the district court that the maintenance provision is genuinely responsive to safety, because "requiring routine truck maintenance will no doubt help to ensure that drayage trucks are operating properly and safely, which will in turn likely prevent motor vehicle accidents." Again unlike in Loyal Tire, there is a logical connection here between the maintenance provision and motor vehicle safety. ATA argues that the maintenance provision is not genuinely responsive to safety because the Port has not demonstrated that requiring motor carriers to "comply with manufacturers' instructions" creates safety benefits in addition to those already created by federal law. In other words, according to ATA, because regular maintenance is already required by federal law, the Port must demonstrate that the non-duplicative portion of the maintenance provision—the requirement to comply with manufacturer's instructions—has an independent safety benefit.
C. Off-Street Parking Provision
The Supreme Court confronted a case of thinly veiled regulation in Gould. 475 U.S. at 287-89. There, Wisconsin forbade its procurement agents to purchase any product manufactured or sold by any firm on a State-maintained list of repeat violators of the National Labor Relations Act (NLRA). Id. at 283-83. "[O]n its face the debarment statute serve[d] plainly as a means of enforcing the NLRA" and the State conceded that its point was "to deter labor law violations and to reward `fidelity to the law.'" Id. at 287. The Court held that Wisconsin "simply is not functioning as a private purchaser of services," but instead attempting to impose a supplemental sanction for violations of the NLRA that "conflicts with the [federal government's] comprehensive regulation of industrial relations." Id. at 288. The Court did not believe that Congress would permit a State to interfere with that scheme "as long as [the States] did so through exercises of the spending power." Id. at 290. The Court explained that "`[i]t is the conduct being regulated . . . that is the proper focus of concern.'" Id. at 289 (quoting Amalgamated Ass'n of St. Elec. Ry. & Motor Coach Emps. of Am. v. Lockridge, 403 U.S. 274, 292 (1971)).
Further, maintaining Port security is an important business interest of the Port. The district court found that the Department of Homeland Security considers the Port part of one of seven "`Group I' port areas at the highest risk of terrorist attacks." Jeffrey Brown, an expert in port security, testified that the off-street parking provision was "safety related" because, for example, parking vehicles carrying hazardous cargo on the street creates safety risks. The off-street parking provision therefore serves the Port's business interest in promoting Port security. Nor does the off-street parking provision reach beyond the Port's participation in the market as a facilities provider and seek to impact the private behavior of third parties. The provision binds only those motor carriers operating on Port property, and applies to only those trucks permitted to operate at the Port. It is tailored to a specific proprietary problem facing the Port.
D. Employee-Driver Provision
The employee-driver provision requires all concessionaires to gradually cease using independent owner-operators for Port drayage. At the end of a five year period, each Port drayage driver must be an employee of a licensed motor carrier. The district court held that the provision was preempted by the FAAA Act as related to rates, routes and services, and rejected the Port's argument that the provision was safety related. The Port does not challenge those holdings on appeal, so the employee-driver provision survives preemption only if it falls within the market participant doctrine.
The Port adopted the employee-driver provision for a number of reasons. The record is replete with evidence that the provision was designed to "ensure sufficient supply of drayage drivers by improvement of wages, benefits, and working conditions."
The Port argues that it subsidized approximately 35% of the drayage trucks operating at the Port, and believes that employee-drivers will better protect that investment. But the concession agreements bind all licensed motor carriers operating at the Port, not merely those who drive Port-subsidized trucks. Accordingly, even assuming that the Port's investment in drayage trucks entitles it to control the employment status of the drivers of subsidized trucks, the employee-driver provision still seeks to impact behavior beyond the scope of the obligations imposed by the subsidies. Cf. Wyo. v. Okla., 502 U.S. 437, 456 (1992) (holding that a State which owned and operated an electricity plant did not act as a market participant in requiring all plants to use at least 10% Oklahoma coal).
E. Placard Provision
Lastly, the placard provision requires concessionaires to "post placards on all Permitted Trucks" when the trucks are "entering and leaving Port property and while on Port property." The placards shall "refer[ ] members of the public to a phone number to report concerns regarding truck emissions, safety, and compliance to the Concession Administrator and/or authorities." Since April, 2009, the Port has provided sticker placards to motor carriers, although Permitted Trucks are allowed to use other placards.
The district court meticulously identified and applied the governing law. We affirm the district court's holdings that the financial capability, maintenance, off-street parking, and placard provisions are not preempted. We reverse the district court's conclusion that the employee-driver provision is saved from preemption by the market participant doctrine, and remand for further proceedings consistent with this opinion.
AFFIRMED IN PART AND REVERSED IN PART
N.R. SMITH, Circuit Judge, dissenting in parts III.B., III.C., IV.B., IV.C., and IV.E. of the majority opinion:
I must dissent from the majority opinion because: (1) the market participant exception to preemption does not apply. Drayage services (not port services) form the relevant market, and the Port of Los Angeles (the "Port") acts as a regulator of drayage services. (2) Even assuming the Port qualifies as a proprietor, the off-street parking provisions are preempted, because they affect parties unrelated to contractual obligations to the Port. (3) The placard provision is preempted and not saved by the market participant doctrine or the safety exception, because California cannot revoke access to channels of interstate commerce and identification requirements on motor carriers are expressly preempted under 49 U.S.C. § 14506(a).
I. Market Participant Exception
The Port acts as a regulator (rather than a market proprietor) of drayage services. It is therefore ineligible for the "market participant" defense to federal preemption. We apply a two-prong test for distinguishing proprietary from regulatory actions:
Johnson v. Rancho Santiago Cmty. Coll. Dist., 623 F.3d 1011, 1023-24 (9th Cir. 2010) (citation omitted). If the answer to either question is yes, the market participant exception applies. Id. at 1024.
The Port's regulation of drayage services does not qualify as "efficient procurement" of needed services. The Ninth Circuit has no controlling precedent on this point. However, the Fifth Circuit, in Smith v. Department of Agriculture of the State of Georgia, concluded that mere ownership of a facility does not make the government a participant in the markets operating in that facility. 630 F.2d 1081 (5th Cir. 1980); cf. Shell Oil Co. v. City of Santa Monica, 830 F.2d 1052, 1057-58 (9th Cir. 1987) (holding that a city "control[ling] easements in the area beneath city streets, a commodity with value . . . . [with which] the city competes with other entities[,]. . . is not a market participant in the setting of franchise fees for easements under public streets"). In Smith, the Fifth Circuit held that Georgia acted as a market regulator when it leased booths to farmers at a state-owned-and-operated farmer's market that gave preferential treatment to Georgia farmers. Georgia acted as a regulator, rather than a proprietor, because it (1) did not "produce the goods to be sold at the market," (2) did not "engage in the actual buying or selling of those goods," and (3) had "simply provided a suitable marketplace for the buying and selling of privately owned goods." Id. at 1083. As the district court in this case suggested in an earlier order, Am. Trucking Ass'ns., Inc. v. City of L.A., 577 F.Supp.2d 1110, 1120 (C.D. Cal. 2008), and a concurring judge in Smith emphasized, the outcome of this test depends on the definition of the market: "[i]f the market is . . . one in sale booths for produce, then Georgia [is a proprietor] of booths. . . . But [because] the relevant market [is] one in vegetables,. . . [and] Georgia is not their producer or seller," Georgia is not a proprietor. Smith, 630 F.3d at 1086 (Gee, J., concurring).
The majority states that the "efficient procurement" prong "is useful in cases where the government is buying goods or seeking services, but it is not the be-all-and-end-all of proprietary action." Maj. Op. at 18216 (footnote omitted). Instead, the real inquiry is distinguishing between propriety and regulatory action. See id. In determining whether actions are "as a market participant or regulator, a court must examine whether the . . . government has imposed restrictions that `reach beyond the immediate parties with which the government transacts business.'" Big Country Foods, Inc. v. Bd. of Educ. of Anchorage Sch. Dist., 952 F.2d 1173, 1178 (9th Cir. 1992) (citing White v. Mass. Council of Constr. Emp'rs, 460 U.S. 204, 211 n.7 (1983) and S.-Cent. Timber Dev. v. Wunnicke, 467 U.S. 82, 95 (1984)).
Here, the Port reaches beyond the immediate parties with whom it transacts, because it does not transact business with drayage service providers. Unlike the rules requiring contractors to hire local workers in White, the Port does not require the shipping lines and stevedoring companies (that rent terminals) to regulate the drayage service providers. Further, the drayage service providers do not, even in an informal sense, work for the Port. See White, 460 U.S. at 211 n.7. Therefore, the Port reaches the limits of the market participation exemption. Id. (privity of contract is not the boundary of the market participation exemption, but "there are some limits on a . . . government's ability to impose restrictions that reach beyond the immediate parties with which the government transacts business.").
The provision of maritime ports does not form the relevant market here; rather, the market is the provision of drayage services. The Port cannot be a proprietor in this market, because it neither purchases nor provides drayage services.
II. Safety Exception
The majority applies the safety exception in this case by distinguishing Castle v. Hayes Frieght Lines, 348 U.S. 61 (1954), and finding that it does not preclude the Port from banning access of motor carriers. Maj. Op. at 18220-22.
In Castle, the Supreme Court held that Illinois could not revoke an interstate motor carrier's access to state highways for repeatedly violating the state highway regulations, because the federal government has assumed exclusive authority over the licensing of interstate motor carriers. 348 U.S. at 63-64. The Court explained that it would be "odd if a state could take action amounting to a suspension or revocation of an interstate carrier's [federal government]-granted right to operate." Id. at 64. The Court further elaborated that
Id. Although the state could not revoke access to its highways for operators who repeatedly violated the state's size and weight restrictions, the state could still (1) resort to "conventional forms of punishment" and (2) rely on federal authorities to protect the state's interest by mandating compliance with state regulations.
The Port does not dispute that the federal government continues to issue interstate transportation "registrations" or "permits" enabling trucking companies to transport cargo across state lines so long as they comply with federal safety and insurance regulations. See, e.g., Motor Carrier Safety Act, Pub. L. No. 98-554, 98 Stat. 2829 (codified, in part, at 49 U.S.C. § 31144); Trucking Industry Regulatory Reform Act of 1994, Pub. L. No. 103-311, § 201, 108 Stat. 1683.
Therefore, interstate drayage operations are the regulatory province of the federal government. California agencies may promulgate safety regulations for drayage operators and may utilize "conventional forms of punishment" for violating these regulations (e.g., fines). However, revoking access, under Castle, is an enforcement mechanism beyond the reach of California and its political sub-parts, including the Port.
The opinion attempts to distinguish Castle, because a limitation on access to a single Port does not prohibit the motor carriers from participating in transport of interstate goods to and from the state or rise to the level of the comprehensive statewide ban at issue in Castle. Maj. Op. at 18221-22. However, the ban in Castle did not "prohibit" offending motor carriers from participating in interstate commerce or "eliminate" connecting links to other states. Instead, as the Supreme Court characterized it, the ban (1) "partially suspended" the motor carrier's federally granted permit to travel interstate, and (2) "seriously disrupted" (rather than "eliminated") the motor carriers' carriage of goods into Illinois and other states. There were obviously alternatives available to carriers in Castle, whose state licenses were suspended, but the state enforcement scheme placed impermissible burdens on a federally-regulated interstate commercial activity. The same problem arises in this case. Barring access to the Port of Los Angeles —the largest port in the United States and one of only a handful of large commercial deep-water ports on the West Coast— would no doubt "seriously disrupt" drayage carriers' ability to transport goods from ships to other destinations in and outside California. Indeed, barring access is a "partial suspension" of drayage carriers' federal permits to transport goods in the stream of interstate commerce.
Thus, although the Port can avail itself of the traditional remedies discussed in Castle, it cannot step into the shoes of the federal government and partially revoke drayage carriers' access to the channels of interstate commerce. Therefore, the Port cannot justify any of the challenged regulations on the basis of safety. California's safety regulations cannot disrupt Federal authority over interstate travel of motor carriers.
III. Off-street Parking Provisions
Even if the Port qualified as a proprietor, the off-street parking provisions do not qualify as "efficient procurement" of services. The Port "seeks to affect private parties' conduct unrelated to the performance of contractual obligations to the [Port]." Johnson, 623 F.3d at 1026. The off-street parking provisions attempt to address political concerns the Port alleges local community members have raised regarding drayage truck parking practices, which are not related to any contracts between drayage providers and the Port.
The off-street parking provisions cannot survive preemption, either because (1) the Port is not acting as a market participant in the "efficient procurement" of services simply by virtue of its ownership of Port facilities, or (2) the agreement's far-reaching provisions affect conduct beyond any direct obligations of drayage providers to the Port.
IV. Placard Provision
A. Preemption under 49 U.S.C. § 14501(c)
The placard provision (requiring concessionaires to post placards on all drayage trucks when the trucks are "entering and leaving Port property and while on Port property") may be preempted under 29 U.S.C. § 14501(c), if it relates to motor carriers' prices, routes, and services. The majority does not determine whether the placard provision relates to prices, routes or services because of its reliance on the safety exception to overcome preemption. Maj. Op. at 18232. However, this provision is not saved by the safety exception (as the majority concludes), because the state cannot impede Federal authority to allow motor carriers access to interstate travel, as noted above. Nevertheless, finding preemption under § 14501(c) is not required, because § 14506(a) clearly preempts the placard provision.
B. Preemption under 49 U.S.C. § 14506(a)
The Port-mandated placard is a "form of identification" under 49 U.S.C. § 14506(a), because it identifies a truck as one serving the Port and provides a phone number to report unsafe activity. Section 14506(a) provides:
Because the placard provision requires drayage operators to display "any form of identification on or in a commercial motor vehicle," the provision is plainly preempted. Further, as explained above, this requirement cannot be saved from preemption as a "proprietary" action lacking the "force and effect of law," because the Port is acting as a regulator (rather than proprietor) of drayage services.
The district court correctly held that the maintenance provision would have only a tenuous effect on prices, routes, and services. See Maj. Op. at 18224. The record indicates that the time and cost of such compliance is minimal. The plaintiffs had the burden to show more than a tenuous effect, and they did not. Therefore, even though the majority did not rely on this reasoning, I concur with the conclusion of the majority that the maintenance provision is not preempted. However, I do not agree with the majority that the safety exception would save the maintenance provision for the reasons set out previously.
I agree with the majority that the concession agreements fail the narrow scope prong of the market participant test. Further, I concur that the employee-driver and financial capability provisions are preempted by federal law.
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